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on Informal and Underground Economics |
| By: | Duman, Anil |
| Abstract: | Informal employment is widespread across many developing countries and remains to be the source of livelihood for billions of workers and their families. Even though diverse forms of informal employment can be seen globally, the paper mainly focuses on developing countries due to high share and endurance of the informal sector. The aim of the paper is to provide a comprehensive overview of the drivers and outcomes of informal employment by distinguishing between wage labor and self-employment. Additionally, the paper reviews potential policies that could incentivize workers and informal firms to transition to the formal sector. Given that the impact of informal employment on workers’ well-being is closely tied to individual characteristics and job status, the paper also examines the various types of informal employment that exist across different working groups. This includes informal employment among women, youth, and vulnerable groups such as migrant workers. Finally, the paper briefly discusses potential policies aimed at formalizing informal enterprises and offering greater protections to informal employees. This includes measures such as improving access to social protection benefits, promoting skills development, and training for informal workers, and creating more flexible and adaptable regulatory frameworks that can better accommodate the needs of informal firms. |
| Date: | 2024–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:yg3t7&r=iue |
| By: | Ashenafi Biru (RMIT University - Royal Melbourne Institute of Technology University); Pia Arenius (EM - EMLyon Business School); Garry Bruton (TCU - Texas Christian University, JLU - Jilin University); David Gilbert (Monash university) |
| Abstract: | This research investigates how entrepreneurs in an early-stage market economy decide their level of compliance with formal rules and finds the manner in which they interact with government officials to operate on a continuum of formality. Focusing on the nonmarket strategy approaches entrepreneurs employ to establish relationships with government officials, we build a model that shows how entrepreneurs adopt strategies aligned with their firm's level of formality, spanning low to high formality practices. We draw on qualitative interview data from entrepreneurs who exhibit varying levels of compliance with state-provided rules and guidelines. We inductively theorize that deciding the firms' level of formality involves strategic interaction approaches with government officials responsible for rule enforcement. Our findings highlight that the interaction strategies entrepreneurs use hinge on the political capital they possess, eliciting the desired response from government officials, and dissuading the officials from enforcing formal rules or imposing sanctions for informality. We offer theoretical and policy implications for future work on the nuances of firm formality and the interaction between entrepreneurs and government officials. |
| Keywords: | business-government interaction, early-stage market economy, firm formalization, nonmarket strategy, regulatory enforcement |
| Date: | 2024–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04493248&r=iue |
| By: | Menezes-Filho, Naercio Aquino; Narita, Renata |
| Abstract: | This paper describes the patterns of worker turnover in selected Latin American countries and their implications for wage inequality. It documents a higher positive annual wage growth rate for job to job changers compared to stayers, due to turnover capturing the immediate gains from search behavior in the short run. Younger workers benefit relatively more from the positive effects of job to job changes, as expected. We also show that transitions are relatively higher within the informal sector for most countries, and particularly so for workers without college education. Moreover, total job separations and transitions from formal into informal employment occur more often among low-skill and young individuals. Next, the paper analyzes wage growth by percentiles for all workers and job-to-job movers for each country over a more extended period. We find that job to job changes are inequality reducing in the short run, consistent with search gains associated with turnover exhausting more rapidly for high-paid workers. In contrast, we find that human capital effects dominate the search effects in the long run, as human capital accumulates over time. Thus, long-run wage growth is lower for job changers than for stayers, so that, while in the short run the search effects tend to dominate those of human capital, in the long run the opposite occurs. As unskilled workers change jobs more frequently, this suggests that job changes are inequality increasing in the long run. A potential explanation for limited wage growth in Latin American economies may include high informality rates. Policies to reduce wage inequality should focus on improving the conditions for positive turnover towards better investment and, thus, higher-quality jobs. |
| Keywords: | mobility;Unemployment;Vacancies and Immigrant Workers;wages;Compensation and Labor Costs;Human Resource Management;Income distribution |
| JEL: | J6 J3 J46 O15 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:13156&r=iue |
| By: | Blagica Petreski; Marjan Petreski; Bojan Srbinoski |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:ftm:policy:2024-03/50&r=iue |
| By: | Leonardo Barros Torres; Gilberto Tadeu Lima; Jaylson Jair da Silveira |
| Abstract: | We incorporate tax evasion to a demand-led macrodynamic model of capacity utilization and output growth rate. The frequency of tax evaders is endogenously time-varying, driven by imitation-augmented satisficing evolutionary dynamics involving pecuniary and non-pecuniary factors reflecting the distribution of tax morale across taxpayers. Consequently, the microdiversity of tax compliance behavior and the macrodynamics of economic activity are co-evolutionarily coupled. Matching empirical evidence, long-run heterogeneity in tax compliance is a stable evolutionary equilibrium, and the higher the median tax morale, the lower the frequency of tax evaders. Other comparative statics matching empirical evidence are obtained analytically and through numerical simulations. |
| Keywords: | Tax compliance behavior; tax morale; satisficing evolutionary dynamics; capacity utilization; output growth rate |
| JEL: | B52 C52 D33 E12 E70 H26 |
| Date: | 2024–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:spa:wpaper:2024wpecon10&r=iue |
| By: | Joshi, Anuradha; Kangave, Jalia; van den Boogaard, Vanessa |
| Abstract: | Increased attention has been paid to the gender dimensions of taxation in recent years, though there has been limited research on the subject – particularly in lower-income contexts. Understanding how tax policies might affect women in lower-income countries is important at the current time, when governments are looking for new ways to increase domestic revenue – particularly through expanding the tax base. Given that women have historically represented only a small part of the formal workforce in these contexts, a shift towards indirect taxes and taxing the informal economy are likely to have a disproportionate effect on poorer households, and women in particular. Understanding whether, and in what specific ways, tax policy in lower-income countries affects the ability of women to participate in the workforce and carry out their caring responsibilities within households is critical for ensuring development with gender justice. This paper reviews the existing literature and related debates on gender and tax in lower income countries. It identifies knowledge gaps, and maps broader issues that are relevant for understanding the gendered impact of taxation. The paper makes four broad observations. First, existing research focuses on formal direct taxes that are less relevant for women in lower-income contexts, given their high participation rates in the informal economy. Instead, presumptive taxes, user fees and informal taxes place a disproportionate burden on low income women. Second, there needs to be greater attention paid to the ways in which women in senior and junior positions in tax administration can affect how taxpayers interact with tax authorities. Third, any assessment of tax policy’s impact on gender needs to consider revenue and expenditure together to ensure that the positive effects of tax policies are not undermined by budgets, or vice versa. Finally, we show that there has been insufficient gender-disaggregated data collection and analysis, which is required to draw generalizable conclusions about the gendered impact of tax policy. We argue that tax specialists need to think about research questions that address these gaps, and simultaneously address methodological challenges by gender disaggregation in data collection, as well as impact evaluation of tax policy implementation and innovation. Our overall conclusions are that tax policies can be made gender-neutral by paying careful attention to where they affect women differentially. There are opportunities for governments to explore policies that positively discriminate as a way to address structural gendered inequities. At the same time we recognise that, barring a few exceptions, tax policy and administration is often an unwieldy instrument to address gender equity directly. Instead other policies relating to labour markets, social protection and public services are better placed to be gender-transformative. |
| Keywords: | Finance, |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:18276&r=iue |
| By: | Pessino, Carola; Rasteletti, Alejandro; Artana, Daniel; Lustig, Nora |
| Abstract: | This chapter analyzes the incidence on income distribution by a comprehensive array of direct and indirect taxes in ten Latin American countries circa 2018. The study finds that although there is a significant heterogeneity, the redistributive impact is equalizing for direct taxes and unequalizing for indirect taxes. Overall, redistribution through taxes, without accounting for spending effects and interactions, is slightly equalizing for some countries and unequalizing for others, but the burden on the poor is high and even higher than on the rich. This is mainly a consequence of the high share of indirect taxes in the tax structures, and of low personal income tax collection and coverage. The inclusion of the redistributive effect of the corporate income tax contributes to improve redistribution and accounts for better comparison with the redistributive impact in more developed countries, where dividends are taxed heavily with personal income taxes rather than corporate income taxes as in Latin America. High levels of evasion and informality make payroll taxes more regressive in integrated labor markets with high informality, but make indirect taxes less regressive, since the poor pay little or no indirect taxes on some of their purchases. |
| Keywords: | taxes;Inequality;Informality;Latin America |
| JEL: | D31 E26 H22 H26 N36 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:13184&r=iue |
| By: | Deng, Guoying; Du, Pengcheng; Hernandez, Manuel A.; Xu, Shu |
| Abstract: | This paper examines the association between corporate income taxes and labor market informality. We present a theoretical framework showing that a higher tax enforcement can push firms to pass on the burden to workers by reducing their social security compliance as well as downsizing and lowering wages. The model propositions are tested using a regression discontinuity design that exploits a national corporate tax reform in China. We find that for every one percentage point increase in the effective tax rate, firms reduce their probability of making basic social security contributions by 0.8%, their compliance rate by 1.4 percentage points, and the probability of making supplementary contributions by 0.6%, while the number of workers and wages fall by 4.4% and 0.7%, respectively. We observe that the effects are more salient among firms privately owned and controlled, large businesses, and in locations where social security contributions are directly collected by the social security administration. The findings suggest that workers not only bear part of the higher corporate taxes faced by firms, but an increase in firms’ tax burden contributes to social security evasion and informality in labor markets. |
| Keywords: | taxes; labour market; social security; remuneration; China; Asia; Eastern Asia |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:2244&r=iue |